In PNG Push, Bidding War for InterOil Launched by ExxonMobil’s Bidding

07/18/2016

Winning the support of its target and topping an offer from Australia's Oil Search Ltd, ExxonMobil Corp has made a bid worth at least $2.2 billion for InterOil Corp and its stake in a rich Papua New Guinea gasfield.

As the French giant looks to push forward with its planned Papua LNG project to rival ExxonMobil's existing PNG LNG project, the potential bid pits ExxonMobil, the world's biggest oil company, against Total SA, which is backing Oil Search.

To help cut costs and speed up development of the new gas field by hopefully being able to tie the two LNG projects together, Oil Search, which owns a stake in both projects, has bid for InterOil. Similar results could still also be achieved by ExxonMobil's move through the bid.

Due to its high quality gas, low costs and proximity to Asia's big LNG consumers, the PNG is considered one of the best locations for LNG projects.

A potential 48 percent stake could be gained by Total in the field that will feed its planned project if Oil Search wins InterOil following which Total has agreed to buy part of InterOil's stake in the Elk-Antelope gas field. to feed ExxonMobil's PNG LNG project, the Elk-Antelope gas could also be used, at least initially.

The assumption that field holds much more than the at least 6.2 trillion cubic feed (tcf) of gas under current estimates could be proved by drilling of one more well this year.

Oil Search has said that it was talking to Total about making a higher bid and the company has at least until July 21 to submit a revised offer. Total was not immediately available for comment.

Analysts said that even if it walks away from the bid for InterOil, handing it to ExxonMobil, Oil Search's dream of getting Total and ExxonMobil to work together could still be fulfilled.

"This is obviously very positive for Interoil shareholders, but it's positive for Oil Search shareholders, too, because through Exxon coming in they get the benefit of the alignment of projects without the (share) dilution in the near term," said Bernstein analyst Neil Beveridge.

InterOil said that in addition to a payment of $7.07 per share for each trillion cubic feet equivalent (tcfe) for resources of more than 6.2 tcfe at the Elk-Antelope gas field, up to a maximum of 10 tcfe, ExxonMobil has offered $45 worth of its own shares for each InterOil share.

"ExxonMobil has submitted an offer to acquire InterOil Corporation, which we believe represents a superior proposal," ExxonMobil said in an emailed statement.

In addition to $0.77 per million cubic feet cfe for resources of more than 6.2 tcfe at Elk-Antelope, Oil Search offered of 8.05 of its own shares for every InterOil share, valuing InterOil's shares at $42.66 on Friday's close.

New York-listed InterOil's 49.9 million common shares issued and outstanding formed the basis of the $2.2 billion valuation.